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When historians come to write about the lasting effects of Russia's invasion of Ukraine, they should look at the annual reports of European companies.
The Financial Times reported last Sunday that Europe's biggest companies have taken a direct hit to profits of more than 100 billion euros so far as a result of exiting or downsizing their Russian operations. In fact, this is only a fraction of the actual cost.
Of the 609 annual reports and financial statements we examined, 176 companies made one-time accusations. But among the statements made by the 433 people who were not indicted, almost all cited soaring energy and raw material prices, or the punitive blow to profits from supply chain disruptions that followed last year's invasion of Russia. Many also mentioned a notable increase in cyber-attacks. Some said consumers were turning away from green and sustainable products to save money amid record inflation.
Some explanations were comprehensive. Dutch supermarket group Ahold Delhaize spoke of “increasing costs across the value chain.” . . Supply chain delays and labor shortages. These developments have had a “impact on our balance sheet valuation, operating results and cash flows. Rising interest rates have primarily affected our lease liabilities, pension obligations and self-insurance provisions, while price increases have impacted our profit margins.” In other words, no corner of the business is left untouched.
Quantifying the actual costs of these indirect effects is almost impossible. But some companies, particularly those with little or no presence in Russia, sought to explain how widespread the damage was.
Building materials group Saint-Gobain has announced that the conflict has caused its energy and raw material costs to rise by around 3 billion euros compared to the previous year.
Swedish telecommunications company Telia announced that energy costs rose by SEK 800 million ($74.5 million) in 2022. Ryanair estimates it will lose up to two million passengers in 2023 due to the cancellation of all flights to and from Ukraine.
Georg Fischer, a Swiss plumbing company, also pointed out that the war has caused energy prices to rise by 100 percent in 2022. A mere 25% increase in energy bills would result in an additional cost of approximately CHF17 million ($19.4 million) and a “significant financial impact.”
None of these companies declared any one-time charges or impairments in their annual reports. But it is clear that the impact of Russian aggression on many European companies is deeper and longer-lasting than the cost of exiting what was a relatively minor market. According to the Kiev School of Economics, Russia accounted for only 3% of the global sales of listed foreign companies in Russia before the war.
But regardless of whether a company has a presence in Russia or not, many are now bracing for long-term volatility and uncertainty. Russia accounted for about a third of French energy service provider Technip Energies' sales. The group has been able to replace much of the lost revenue by focusing on new geographies, but Chief Financial Officer Bruno Vibert said management must be far more flexible and agile. said. Russia's experience also raises questions about risks in other markets, such as China.
“There’s more unpredictability and instability,” he says. “We have to face very difficult dynamics in the near future.”
Meanwhile, companies with well-known brands are beginning to realize that they remain exposed in other ways. “For most companies, the value of their brand is greater than the value of their Russian assets,” said Navi Abdullaev, a partner at strategic consulting firm Control Risks.
So what if the product is associated with a senior Russian politician or military officer? Even if they stop supplying that market, the famous brand will still be distributed to Russian stores through third-party importers. ing. “If the media covers it, [President Vladimir] If Putin uses Western branded products, the damage to the company's market value may be greater than the damage to Russian assets,” Abdullaev said.
European companies have already suffered a major hit to their profits as a result of Russian aggression, but this is not the end of the story. But this price must be paid if Putin is to be stopped. Successful companies know how to adapt. Perhaps the most long-term consequence of this war for European business will be that it will make European business more efficient and competitive.
peggy.hollinger@ft.com
